DiscussionDIVAS

A bad week for print

While we are curious about what you’re reading these days, we’re particularly curious about how you’re reading. Online? In print? On the Kindle?

 

It’s a question that percolated this week as local newspapers came under pressure and Amazon released the latest version of its digital e-reader, the Kindle.

 

A rough week for newspapers

The demise of newspapers has been a sad reality for some time, but the recession seems to have tipped some that were holding on over the edge.

 

Declining print readership and falling revenues forced Denver's Rocky Mountain News to publish its last paper on Friday, caused the San Francisco Chronicle to say it may fold, and put the Philadelphia Inquirer into bankruptcy. All this seemed to drive home the obvious point that more people consume news online: readership on news sites grew 12% last year.

 

A rough week for books

The release of Amazon's Kindle 2 this week seemed to stir up another round of questions and commentary about the future of the book. There are now a number of e-readers on the market, and that combined with competition from resellers offering better deals and audible books available for download on iPods and computers, the publishing world is certainly suffering. 

Hard-cover adult book sales fell 13% last year, and Borders is struggling to save its business—the company’s stock has fallen from $8 a share in September to 58 cents. Independent book stores are closing across the country.

Meanwhile Amazon’s Kindle sold out before the holidays and there was a waiting list for the new version (post Oprah mention). Kindle 2 costs $359 and lets you wirelessly download books and newspapers on the 10.2 ounce digital e-reader, which the company says is lighter than most paperbacks.

 

Clearly the publishing world is concerned. The Authors Guild took Amazon to task this week over one of the new Kindle features, a capability called “read-to-me” that enables the device to read a book to you out loud, albeit in the voice of a computer. The guild says it gets royalties for books on tape but not from “read-to-me,” adding to the publishing world's despair. 

 

The big picture

About 32 million Americans are considered illiterate according to a recent study, so maybe we should focus less on new media killing old media and just be glad that people are reading and facilitate ways that encourage more of it. And while it's sad to lose businesses that employ a lot of people, there's clearly a shift taking place in information consumption—one that isn't over—and one that requires companies to adapt their business models, quickly. Speaking of which, in an effort to improve our model we'd like to hear from you. Will you take our short survey and help us figure out how to better serve your information needs? Thank you!

The Housing Crisis: We're all in this together

We're breaking down the proposed housing plan for you. Why? Because even if you didn't take out a mortgage that you can’t afford and even if you're not "under water,” this plan affects us all in one way or another.

 

Why does the plan affect me?

For one, the rising tide of foreclosed homes—2.3 million in 2008—is a big reason why home prices keep falling. Foreclosed homes dragged down the median home price to $180,100, lower than in 2004 when the mortgage lending frenzy was in full swing. Low home prices are a problem because it means many people have mortgages worth more than their homes, but it’s the fact they’re still falling that’s more worrisome.

 

Many economists agree that “finding a floor” for home prices, meaning stopping them from falling further, is key to the economy’s overall recovery. Why? If home values are stable, then banks feel less nervous about loaning money that might not be paid back because the value of the home fell below the mortgage.

 

The flow of credit (loans) is crucial to making our economy work and if it’s too difficult to get or too expensive, even for people who can afford to pay back a loan, then the system is still stuck. And that’s bad for the economy, the market, and so on. Make sense?

 

Additionally, the plan may impact people simply by not including them as eligible for aid, possibly millions of people whose homes have lost too much value. More details will come on March 4 but here's what we know now:

 

• Cost: $75 billion. You'll see references to $275 billion, which includes $200 billion to encourage more lending from Fannie Mae and Freddie Mac, the big U.S. home lenders. 

• The $75 billion is to help about 9 million people in two categories: 1) those who can't meet their monthly payments and are on the brink of foreclosure (lots of subprime loans here), and 2) those who can meet payments but whose mortgages are bigger than their home price (i.e., the mortgage is $300,000, the home is worth $295,000).

• The plan doesn’t help those with loans above $417,000 (jumbo loans), with loans not guaranteed by Fannie and Freddie, or those whose mortgages exceed 105% of the home's current value (i.e., the mortgage is $300,000 and the home price is $270,000). 

• Help will come in two forms: 1) the government will pay lenders an incentive to modify home loans so that monthly payments are equal to 31% of the owners pre-tax pay, and subsidize any difference, and 2) will loosen restrictions to make it easier for people to refinance loans guaranteed by Fannie and Freddie.

• The money will come from the Troubled Asset Relief Program (TARP), the $700 billion Congress allocated in the fall to assist banks and the financial sector, meaning Congress doesn't have to approve the use of the money again.

 Read the government fact sheet on the plan.

The big picture

Critics wonder if the plan bails out people who lied about their income to get a loan. In telling NBC about the plan, FDIC Chairwoman Sheila Bair said, "Thereare moral hazard issues here." And she goes on to make the point that by keeping these homes out of the market, meaning not for sale, it helps stabilize home prices. And that, we can probably all agree is something we can live with.

The $3-plus trillion week

Remember when billions seemed big? Even millions? Well forget it, trillion is the new billion and this week took the cake: It was a $3-plus trillion week.

Between new Treasury Secretary Timothy Geithner's plan to rescue banks and the stimulus bill that made its way through Congress, trillions were allocated to lift the country out of its economic mire. Here's a **quick** recap:

Geithner's plan gets panned  
He may be the man with the plan but Wall Street didn't like it. The market fell almost 400 points following his remarks Tuesday as critics panned the blueprint to spend $2.5 trillion for being too big and too vague. Investors were looking for clarity specifically on how to handle all those toxic home loans that we've been talking about, endlessly it seems, for months and months, that continue to clog up the bank lending system. 

Geithner and the administration want to combine about $1 trillion in public and private money to buy these assets--the bad bank of sorts--but many see the private side as a big gamble because it's a lot of risk to take on, and the upside or return on the investment is not a sure bet. 
The plan also calls for using $50 billion to help struggling homeowners. New details suggest the government may be willing to buy loans from people who can’t pay their mortgage, meaning the government owns the loan, and then they'll refinance it in a way that could help keep the person in his home. See a breakdown of the spending of the $2.5 trillion.

A stimulus plan for you!
After weeks of talk and debate, bailout programs for banks and car companies, finally, a stimulus plan--for you! Here's a cheat sheet on what all was cut in the blended House/Senate version, which is now on view for 48 hours to the public (be careful, it’s about 1,000 pages long).

Total bill: $787 billion, less than both the House and Senate versions
Total spending: about $500 billion
Total tax cuts: $286 billion

Major points in the package, as details still emerge:

• Tax cuts: $400 for individuals, $800 for families
• $70 billion to help middle-income earners avoid the Alternative Minimum Tax this year, a tax designed in 1969 to prevent millionaires from finding ways to minimize their taxes too much but that grew over time to ensnare people with incomes as low as $30,000.
• $8,000 tax credit for new homeowners this year (unclear if it will have to be paid back?)
• $250 one-time payment for people who receive social security
• Education spending was cut fairly significantly form the House proposal, probably about half of what it was, around $50 billion
• $64 billion in infrastructure spending (highways, bridges and high-speed railways)

Feel free to add other line items you find interesting here.

The big picture
All of this is still tough to wrap one's brain around. The numbers are big and the returns are unknown, both financially for the taxpayer and for some of the promises. President Obama says the stimulus plan will create 3.6 million jobs, but that number isn't a sure thing. Some worry the plan is too small while others worry it’s too big. Regardless, Wall Street certainly wants some firm plans so the market can start regaining confidence, probably something everyone is looking for a bit of at this point. 

Discussion thread - we started a discussion this week on responsibility, examining the role of individual and collective responsibility in society, particularly in light of the economic crisis. We’re getting interesting comments and we’d love to hear what you think about responsibility. 

Also: Keep up with the recession on this new pop-up site, www.recessionwire.com!

Discussion topic: Who's responsible?

Note: This is a mid-week update!

At our Divas group in San Francisco this week we talked about responsibility on a number of levels in light of the economic crisis—who is responsible for the mess? People at the top who took profits and ignored the house of sand? People at the bottom who took loans they couldn't afford? People in the middle?

It was an interesting and appropriate discussion in light of Wednesday's public grilling (flogging) of the eight bank executives that took TARP money and the agreement reached on the stimulus bill. What are our individual roles in stimulating the economy, we asked? Since none of us (fortunately) have lost our jobs, should we be going out for dinner? Should we be hiring a babysitter? Or should we be saving for what might happen? 

New York Times columnist David Leonhardt tried to answer this question on Wednesday, saying the dilemma is one economist John Keynes would have called the " the paradox of thrift." Just when you want people spending to help keep people employed and keep the economy churning, people rein it in. The national savings rate spiked to 3.6% in December after hovering around one percent for a few years (see NYT chart).

Join the discussion! Where and how are you cutting back? Is it more important right now to focus on individual or collective responsibility? 

Health care reform in focus

It sounded bad last Friday when reports revealed that former Senator Tom Daschle had paid $128,000 in back taxes during his vetting process as the nominee for health secretary. By Tuesday it was over.

 

And while Daschle’s tax gaffe was yet another embarrassment to the new administration, which seems to have a knack for selecting candidates with tax problems—Treasury Secretary Tim Geithner (confirmed) and Nancy Killefer, who withdrew her name—it’s clear after a short period that health care reform is on the way.

 

SCHIP

On Wednesday President Obama signed a bill to extend and expand the State Children’s Health Insurance Plan (SCHIP), a safety net that provides government funds to help states offer health insurance to millions of children. The program was set to expire March 31.

 

Under the new parameters, SCHIP will continue covering 7 million children and open it up to four million more, including children of legal immigrants, and loosens restrictions on enrollment. If talk of SCHIP sounds familiar, that’s because former President Bush twice vetoed efforts to expand the program in 2007. It was initially passed in 1997 to cover children not covered by Medicaid.

 

The program will cost about $33 billion over four and half years and will be funded largely by an increase in taxes on cigarette sales.

 

More moves on health care

The stimulus package that’s working its way through Congress (with less ease in the Senate) includes a good portion of spending on health care, which we mentioned last week. In the version that passed the House, billions are allocated to help cover Medicaid costs at the state level and extend its reach to some of the newly uninsured, plus help people without jobs pay for insurance. See a cost breakout here.

 

The big picture

While SCHIP is designed as a safety net to catch families who are poor but not poor enough to qualify for Medicaid (monthly income of less than $1,911), the health care expenditures in the stimulus package are significant steps toward health care reform, and Obama’s pledge to make health care more accessible and affordable to every person in the United States. Critics say the moves are steps toward nationalizing health care, putting the burden on the government and not the individual. Already government spending on health care equals about $8,000 per person. With 47 million people uninsured, those numbers may rise. On Friday the bureau of labor statistics reported that 598,000 people lost their jobs in January, on top of the 2.6 million lost in 2008.